London Steam-Ship Owners' Mutual Ins Assoc Ltd v Kingdom of Spain

A state does not enjoy immunity under section 3(1)(a) of the State Immunity Act 1978 where proceedings concern its non-sovereign pursuit of monetary claims under a commercial insurance contract. The court must characterise the asserted cause of action, rather than decide its merits, when deciding whether proceedings relate to that commercial activity.

A third party claiming a contractual benefit subject to an arbitration clause is bound to arbitrate sufficiently connected disputes. That obligation extends to coercive relief for breach of the same obligation. A purely declaratory arbitral award, however, creates no new duty to honour or perform it and cannot itself found damages for its breach.

Claims by an insurer seeking to undo the consequences of direct insurance claims are matters relating to insurance. Under the Brussels Recast Regulation, they must ordinarily be brought in the defendants’ Member State of domicile.

Following the Prestige casualty, Spain and France obtained a final Spanish judgment against the Club, the shipowner’s liability insurer. Earlier English arbitration awards and judgments under section 66 of the Arbitration Act 1996 had declared that the States’ direct claims were subject to London arbitration and a pay-to-be-paid clause.

The Club then pursued new arbitrations seeking coercive relief for alleged breach of the arbitration obligation, and brought English court claims alleging breach of the awards and of the section 66 judgments. Spain challenged the appointment of an arbitrator. Both States challenged jurisdiction and claimed state immunity in the Award and Judgment Claims.

Mr Justice Henshaw rejected Spain’s immunity challenge to the section 18 application: [2020] EWHC 1582 (Comm). Mr Justice Butcher rejected immunity, held that the court had jurisdiction over the Award Claims, but lacked jurisdiction over the Judgment Claims: [2020] EWHC 1920 (Comm). The central issues were immunity, the scope of the arbitration exception, and jurisdiction under domestic rules and the Brussels Recast Regulation.

1. Spain’s section 18 appeal was dismissed; the States’ Award Claims appeal was allowed; and the Club’s Judgment Claims appeal was dismissed.

2. The States’ pursuit of direct civil claims under a commercial contract of marine insurance was commercial activity for section 3(1)(a) of the State Immunity Act 1978. The fact that the claims were pursued in judicial proceedings did not make them judicial rather than commercial. The Award Claims, Judgment Claims and the application supporting the new arbitration all related to that activity because the alleged breach and loss were integral elements of the claims. Their ultimate merits were irrelevant to that characterisation.

3. Spain was also not immune under section 9. By asserting its conditional right under the insurance contract, it had agreed in writing to arbitrate disputes sufficiently connected with that claim. The new arbitration concerned the consequences of pursuing the same claims outside arbitration. The distinction between earlier declaratory relief and new coercive relief was immaterial.

4. The section 18 application and Award Claims fell within the arbitration exception in Article 1.2(d) of the Brussels Recast Regulation. Their principal focus was arbitration. The Judgment Claims did not: their asserted foundation was an alleged obligation arising from an English judgment generally, rather than from arbitration.

5. The Award Claims had no real prospect of success. A declaratory award declares existing rights and obligations but imposes no executory obligation. The implied contractual promise to honour or perform an award concerns a coercive award capable of performance. It does not create a separate claim for damages or equitable compensation where the award is purely declaratory. The Club’s remedy, if otherwise available, lay in enforcing the underlying arbitration obligation through its new arbitrations.

6. The Judgment Claims were matters relating to insurance within Section 3 of Chapter II of the Brussels Recast Regulation. In substance, they sought to nullify the effect of direct insurance claims pursued by the States. Article 14(1) therefore required the Club, as insurer, to sue in Spain and France respectively. Article 14(2) did not assist because proceedings to recognise and enforce a foreign judgment arise under Chapter III, not as an original claim pending under Section 3.

• Court of Appeal (Civil Division): Spain’s appeal concerning the appointment of an arbitrator was dismissed. The States’ appeal concerning the Award Claims was allowed. The Club’s appeal concerning the Judgment Claims was dismissed: [2021] EWCA Civ 1589 .
• Commercial Court (Henshaw J): Spain was held not immune from the section 18 application and an arbitrator was appointed, save as to a proposed contractual-damages claim: [2020] EWHC 1582 (Comm) .
• Commercial Court (Butcher J): The States were held not immune from the Award or Judgment Claims. The court accepted jurisdiction over the Award Claims under domestic service-out rules, but held that it lacked jurisdiction over the Judgment Claims under the Brussels Recast Regulation: [2020] EWHC 1920 (Comm) .